Chevron to decide big investment in 2011

US-based energy giant Chevron Corp. may come up with the final investment decision to develop Indonesia's first deep-water gas project off East Kalimantan as early as 2011.

Meanwhile the government hints that this expensive project may get privileged exemption from the regulation which requires all producers to sell at least 25 percent of gas produced on the domerstic market.

Chevron won the government's approval for its plan of development (POD) for the project in the Kutai basin in October last year and now the company is preparing to conduct the front end engineering design (FEED) by the end of the year.

"In the FEED, we will make a very detailed study of the project including costs and schedules, that we can construct and execute," Chevron's managing director for its IndoAsia business unit Steve Green told reporters Tuesday at Chevron's Minas field in Riau Province .

Chevron celebrated on Tuesday achieving 11 billion barrels of cumulative production from Minas.

Steve added that the FEED would be completed in 12 to 14 months and afterwards Chevron will then make its final investment decisions.

Earlier media reports mentioned that the project would require a projected total cost of US$6.97 billion. But, Steve said that the real investment figure would be known after the completion of the FEED .

"It's too early to speculate on the project's economic viability," he said.

Steve said it needed at least four years for project development, but he did not give the exact date when the project could be on stream.

"I am not going to speculate on the first gas date, we will able to answer that question after the FEED process. But, we are still committed to develop the project," Steve said.

The Kutai basin deep-water project consists of the development of five gas fields, with project development separated into five production sharing contracts, Steve said.

It will be the deepest gas exploration project in Indonesia, with the depth of the water ranging from 2,500 to 6,000 feet, approximately 80 kilometers offshore from East Kalimantan near the Bontang LNG facility.

Chevron currently holds an 80 percent operating interest in these projects and Italy's Eni SpA owns the rest.

According to Bloomberg, the entire venture may pump a maximum of close to one billion cubic feet of gas a day, equivalent to 13 percent of Indonesia*s current output

Under the current regulation, gas producers are required to sell at least 25 percent of their production to the domestic market.

However, minister of energy and mineral resources Purnomo Yusgiantoro has repeatedly hinted that the Chevron's deep-water project might get special treatment in this respect (due to costs involved).

"This project is a very expensive one, meaning that it requires a high price. According to the government regulation, the gas has to first prioritize domestic markets.

"But, if the domestic gas users, for various reasons, cannot afford to buy this expensive gas, what we are thinking is to combine the use of the gas (the domestic obligation proportion) for domestic market and for export," Purnomo said.

He added that even though Indonesia had set a priority to supply gas to the domestic market, the country did not close off other options.

"The economic viability of the project is also important," Purnomo said.